Key Performance Indicators are a measurement tool that helps businesses understand how well they’re doing. A key performance indicator measures the success of an organization or project. It shows whether you’re meeting your objectives. As a business leader, you need to know what kind of results you want to achieve and then set up key performance indicators to measure.
Types of Key Performance Indicators
KPIs can be set on a team basis. Here are useful points about KPIs:
Sales' KPI will be completely different from Human Resources' KPIs.
There are also variations in the type of indicators you can measure, such as quantitative vs. qualitative.
Some KPIs can predict future performance, such as website traffic.
Lagging KPIs describe results that happened in the past.
Input KPIs measure assets, time, and resource requirements to complete an action or project.
Process KPIs assess the efficiency and productivity of your business.
How to structure your KPI
It's fairly common for people to make the mistake of combining business metrics in with KPIs when it comes to management or reporting. As a result, many important business metrics are simply lost in reporting and other areas. It's important that you remind yourself of the differences between the two areas: metrics and KPIs. Metrics relate directly to measurable features whereas KPIs relate directly to an important business outcome that needs measuring as well. Remembering that distinction will help to make sure your most valuable metrics are not overlooked by making sure they do not become "KPI-adjacent." Define the performance measures you will use to monitor your success. By now, you should have everything in place to get started with structuring your KPIs. Build them and they will come… or so they say! There are three different types of performance measures: activities, outcomes, and projects. If you're just getting your business off the ground, it might be a good idea to start with activity metrics first so that you can clearly define if certain numbers represent successes and failures for a task or project. For instance, What is your desired outcome? Increase revenue by 20% this year.
Your KPI should be connected with a key business objective.
Going through the steps to connect your KPI means taking it in specific directions and making sure that you're focusing on these objectives because otherwise, all of your efforts will just go to waste and be for nothing. Whenever possible, try to get other people involved so that you can measure the impact of the work and how a certain strategy may need adjusting if not adjusted properly from the offset. A KPI should express where one's organization would like to go in the long run and how far it's gotten. So make sure each one is focused on defining what's important because a KPI shouldn't be arbitrarily chosen but rather carefully selected - as is anything else for that matter!
How To Track KPIs
Before you can measure your KPIs, you'll need to identify which metrics to track. Metrics should be based on your goals and your organization's culture. Set your targets. They're often based on a combination of historical performance, industry standards, and personal preferences. You'll also have to answer the who, when and why. Who is accountable for this metric? Identify the person who is responsible for measuring this metric, so he or she can be the go-t0 when addressing roadblocks that might impact performance. He/she will also be responsible for monitoring progress. The business is looking for someone who can lead a team of people to achieve business objectives. The person must be able to communicate effectively and work well with others.
Assign KPI to specific individuals
One person definitely cannot do all the work that is required when it comes to keeping track of metrics and goals. No matter how expert the analyst is, there should always be a business leader in charge of analyzing results from their perspective, based on past experience and knowledge. They will have more expertise in forming conclusions about why data “messes up” and what can possibly be done about it. It’s also great if an individual who handles a specific KPI can influence resources dedicated to improving this KPI because they will have more knowledge when it comes down to handling numbers than anyone else on your team.
Share your KPI with stakeholders
Use metrics to effectively convey the performance of your current program and future growth potential for your product or service. Measurement is a form of communication! If there's no explanation to go along with what you're measuring, how will employees know how their performance contributes to the success of the organization? You need BUY IN from employees if you want to work towards an ambitious goal. And this sort of alignment can only be established by communicating specific goals and numerical targets so that everyone knows what's expected of them. Make sure that once you've gone public with your goals, you are open to feedback from staff - because it can only strengthen the way in which your business plans are developed and ultimately help achieve even better results since they have been tailored specifically to suit everybody's needs.
Review your KPIs on a consistent basis
Ensuring your KPIs are aligned with your vision should be given due attention. Ensure that you review your KPIs on a consistent basis. During the review process, measure the effectiveness of each KPI in comparison to the goal which it is meant to achieve. If there are no shifts in progress, it's possible that the objective itself was not accurately presented or that there was an error in measurement - either way, these things need to be addressed as they can lead to miscalculations down the line and ultimately have a negative impact on business performance!
Like most goals, a Key Performance Indicator (KPI) requires that an owner be defined. These are the people who are responsible for pulling and consistently providing the team with updates on their progress over a set period of time. We advise that most owners track their KPIs on a regular basis. Monthly is effective in most cases.